Value of fraud cases in UK trebles in 2002

Company fraud is being executed at record levels as the prevailing economic uncertainty is providing managers with opportunities to commit corporate crimes, two surveys published today reveal.

The total value of fraud cases in the UK trebled last year to £717m, according to research by KPMG, making 2002 the second-worst year for fraud since 1995 when the case of the collapsed BCCI came to court.

The average value of a UK fraud case has more than doubled to £8.6m, according to KPMG, with VAT, tax and investor fraud on the increase. These cases usually involve a fraudster obtaining the VAT registration from another country to acquire VAT free goods, and then selling the goods on at VAT inclusive prices and pocketing the tax.

A survey of global corporate fraud by the consultants, Ernst & Young, found that newly installed middle managers were the biggest culprits of fraud, with 85 per cent of the managers that committed the largest frauds being in their positions for less than a year.

More than half the companies Ernst & Young surveyed had experienced a significant fraud in the past year. Nearly half were frauds of more than $100,000 (£60,000), and 13 per cent exceeded $1m.

The biggest offenders were company managers, who were responsible for 55 per cent of frauds, while employees were only responsible for 30 per cent. This is particularly the case in the UK, where, according to KPMG, management fraud is four times higher than employee fraud.

John Smart, an Ernst & Young partner, put the high fraud figures down to the growing numbers of transient staff, the growing complexity of organisations and the accessibility of the internet. "Long-established middle management is being downsized around the world, the eyes and ears of the company are becoming blind and deaf to potential misdemeanours," Mr Smart said.